Not only is this not what you signed up for, but it can actually get you in trouble with HMRC! This is because of legislation called IR35, which was introduced by the government to help tackle the issue of tax avoidance.

What actually is it, though? And how does it affect you if you’re a freelancer? Let’s take a look.
 

What is IR35?

The primary motive of the IR35 rules is to determine an individual’s employment status for tax purposes. It was introduced in an effort to clamp down on ‘disguised employees’ slipping through the tax-paying net.
 

What would be the benefit of disguised employment?

A disguised employee is someone working for a client on a supposedly self-employed basis, when in reality the working relationship is more like an employer and employee.

Before IR35 was introduced, a business could take on a contractor rather than hiring the same person as an employee. They wouldn’t need to pay National Insurance or other contributions, and wouldn’t have the responsibility of looking after staff.

For the freelancer, it was an opportunity to pay themselves in a more tactical way through their own limited company. This usually resulted in a lower tax bill than they would pay as the client’s employee.

Of course, not all disguised employees come about as a result of dishonesty. Sometimes, it’s because business owners and contractors aren’t sure where the boundaries lie.
 

How do I know if I’m inside IR35?

Being ‘inside’ IR35 means the way you’re working with a client falls within the remit of IR35 rules. A basic rule of thumb is that if you’re being asked to work the same hours as a regular employee, at the same location, and without the power to decide, you’re almost certainly inside IR35.

There’s also the question of Mutuality of Obligation, where there is any kind of obligation to give or accept work (on either side), rather than having the freedom to accept contracts as you wish. Freelancing is, of course, supposed to be flexible, allowing you to pick and choose the projects you want to work on, so it’s something to look out for!
 

What happens if a freelancer is inside IR35?

If you’re ‘within IR35’ for a particular project or job, then this has implications on how you pay tax. You’ll be considered an employee for tax purposes, and the ‘client’ must therefore deduct Income Tax and National Insurance contributions in the same way they would for an employee paid through their payroll.

If you’re outside IR35 and therefore not considered to be an employee for tax purposes, your bill will be paid to you in full without deductions. Whether your client makes deductions or not, you must report your income in your tax return!
 

Who decides if a freelancer is within IR35?

It’s up to the client to decide, but only if they’re a medium to large-sized private company which has either:

• More than 50 members of staff on its workforce
• Annual sales in excess of £10.2 million

 
If the client doesn’t meet the criteria, then you’re responsible for determining your own IR35 status. If you think you might need help determining your status (or just to be on the safe side), you can make use of HMRC’s online CEST (Check Employment Status for Tax) tool.
 

Contesting IR35 decisions

It’s worth knowing that you can contest a client’s verdict on whether you’re operating within or outside IR35. HMRC’s Alternative Dispute Service enables you to escalate the issue and contest the decision.

When starting work on a new contract or with a new client, make sure you have agreements down in writing to refer back to if necessary. It’s also worth doing this for any ongoing existing contracts.
 

Can I freelance for an old employer?

This is where things get a little complicated. If a previous employer gets back in touch with you to try and enlist your services as a freelancer, what’s the correct response?

After all, you don’t want to get in trouble, and wouldn’t you automatically fall inside IR35 if you were to say yes? Well, not necessarily.

It really boils down to whether or not you operate in a way that contravenes the IR35 rules, based on the criteria outlined above. Again, the basic rule of thumb is that if you feel as if you’re being treated like a regular employee, you might have something to worry about.

Failing to comply with IR35 can result in financial penalties.

 
Head over to our information hub for more guides, news and advice on navigating life as a professional freelancer, from finance to tech and more.

The post How Does IR35 Affect Freelancers? appeared first on Freelancer News.

One of the main advantages of being a freelancer is that you answer to no one, but this also means you’re solely responsible for ensuring the smooth running of your business. No pressure!

Bookkeeping, the process of recording all the transactions in your business, is one area where it can be particularly difficult to keep track of everything all on your own, which is why good software can prove invaluable, simplifying your financial management and saving you precious time in the process.

There are lots of great options out there, though. So how does one know which to pick?

Well, hopefully we can help with that, as we’ve compiled a list of the three best bookkeeping software applications for freelancers based in the UK. We’ll go through the pros and cons of each, and see which one comes out on top.
 

Xero

This is one of the most popular and well-established options in the UK, among businesses and self-employed individuals alike. Some of the key features include:

• Real-time bank feed integration
• Customisable invoicing
• Detailed financial reports (profit and loss, etc.)
• Making Tax Digital (MTD) compliant

Pros

A big factor in Xero’s popularity is its commitment to integrating third-party apps (PayPal and HubSpot, for example). This allows the software to feel somewhat familiar, even if someone’s never used it before.

On top of this, Xero’s overall design is incredibly intuitive, and this further reassures new users, who actually get the sense they know what they’re doing.

Xero is also just a good all-round option, being suitable for businesses of every size, and in every kind of industry.
 

Cons

In spite of the intuitive design, there are some more advanced features which new users might struggle to make proper use of right away.

And then there’s the price. The premium plans offered by Xero are a little more costly than many of those offered by its competitors, and so this is something to take into consideration.

What’s the difference between the standard and premium plans? For starters, the standard plan puts a limit on the number of invoices you can send, as well as the number of bills you can enter.

You also miss out on several key features, such as the ability to track projects and use multiple currencies.

Essentially, the more expensive the plan, the more features you have access to and the less restrictions are placed on you.
 

FreeAgent

This is another leading bookkeeping software specifically designed for businesses, freelancers, and contractors based in the UK. Its key features include:

• Self-Assessment and tax calculation
• Project management (track time and expenses, etc.)
• Real-time bank feeds
• MTD compliant

Pros

The main advantage of using FreeAgent as a freelancer is that it boasts features which are specially tailored for people like yourself. A prime example of this is the project management tool, which is ideal for those who bill by the hour (like most freelancers!).

Pricing is also inclusive, meaning you are able to have unlimited users, clients, and projects. It’s a fixed price at £14.50/month for the first six months, and £29/month thereafter.
 

Cons

FreeAgent is obviously less equipped to handle larger or more complex businesses, but this shouldn’t really be a concern if you’re self-employed.

There are also limited integration options in comparison to software like Xero.
 

Pandle

Last but not least, there’s Pandle, which offers free bookkeeping software for freelancers and business owners. What are some of the key features?

• Send quotes and invoices
• Automated payment reminders
• Bank reconciliation
• Accept invoice payments online
• Mobile app
• Business reports
• Multiple currencies
• MTD compliant

Pros

First of all, ease of use is a priority, with Pandle having been built to be used by pretty much anyone. It even has safeguards in place to help users minimise the risk of making mistakes in their bookkeeping – so even if you think you’re rubbish when it comes to tech stuff, you can rest assured you’ll be fine.

If you do find you need assistance, though, you’ll have access to a support team of specialist bookkeepers.

Another big thing is that it saves you time by automating a lot of the more boring and usually lengthy processes.

In addition, Pandle includes features to assist you in working with customers and suppliers more efficiently, and these are all on top of the standard banking, accounting, invoicing, and reporting tools.

What about pricing? Well, as previously mentioned, the base version is totally free, but even the paid tier (Pandle Pro) is still reasonably priced at £5 + VAT per month. This makes Pandle a more viable option for freelancers than a lot of the other ones on the market.
 

What’s our verdict?

Xero is an excellent one-size-fits-all option, with its real-time financial insights making it a top choice for businesses looking to streamline their bookkeeping.

FreeAgent, on the other hand, is a great choice for freelancers specifically, offering a straightforward tool that simplifies self-employment tax, as well as project tracking.

All in all, though, it must be said that Pandle offers the most comprehensive package at the best price point. It’s not just an affordable alternative; it’s a top-quality service, and the perfect choice for any freelancer who wants to finally take control of their accounts (but without breaking the bank).

 
Head over to our information hub for more guides, news and advice on navigating life as a professional freelancer, from finance to tech and more.

The post Best Accounting Software for Freelancers appeared first on Freelancer News.

We explore what OnlyFans is, why it qualifies as a legal job, and what your tax liabilities are whether it’s your full-time job or a self-employed side hustle.

What is OnlyFans?

OnlyFans is an app created in 2016 which has since grown into a large online community of content creators and subscribers, with more than 120 million registered users worldwide. OnlyFans creators share their content with subscribing members for a monthly subscription fee.

Content covers a range of topics such as fitness and music, although the platform is probably best known to cater for adult tastes.

Whilst most platforms have strict rules which censor or disallow content of a sexual or pornographic nature, OnlyFans doesn’t, enabling creators to share or sell this type of material more freely.

Does OnlyFans qualify as a legal job?

Yes, OnlyFans is classed as a legal job and does qualify as a valid way to generate income. There are many individuals who have turned to OnlyFans as their primary source of income, while others use it as a side hustle to earn extra money.

Like most online creator sites, running an OnlyFans account can involve:

• Dedicating substantial time and effort to creating content – such as producing, shooting, and editing, which are all skill sets in their own right
• Engaging and interacting with subscribers
• Developing a marketing strategy, such as creating and managing content on additional platforms like Twitter, TikTok, or Instagram
• General account management and maintenance

Creators who use the platform are generating income just like any other business or online content creator, and so the rules about recording and reporting income will still apply.

Do creators pay tax on OnlyFans earnings?

Yes, the money which OnlyFans creators can earn from paid subscriptions or selling content is taxable just like any other income can be, regardless of its source.

This is because any money generated through OnlyFans contributes to your total personal income during the tax year, and this is subject to Income Tax and National Insurance.

As a creator you’ll pay tax based on the total amount you earn in the year, with your self-employed income being added to any other earnings you might have.

This means that if you have a full-time job and run an OnlyFans in your spare time, the money you make from self-employment will be added to the money you’ve already paid tax on through your employer in order to work out which tax rate will apply to your OnlyFans earnings.

• Personal Allowance: You won’t pay any income tax on earnings between £0 – £12,570.
• Basic rate: 20% on income between £12,570 and £50,270
• Higher rate: 40% on earnings between £50,271 and £125,140
• Additional rate: 45% on earnings over £125,140

The good news is that OnlyFans still counts as ‘miscellaneous’ income, so the trading allowance will apply. If the total amount you receive from self-employment is less than £1,000 in a tax year, you won’t need to tell HMRC or pay tax on it. Once you cross the threshold, you’ll need to register as self-employed.

Can I claim any allowances or tax relief?

As with any other type of self-employment earnings, you can claim tax relief for allowable expenses that are directly related to the running of the business. This might include a portion of your utility bills and internet usage if you’re working from home.

Can I have an OnlyFans side hustle if I am employed?

Technically, yes – somebody who is employed could also be self-employed and run an OnlyFans account as a side hustle. However, there are some important things to consider and establish first.

It’s often worth looking at your employment contract to check if there are any guidelines around what you can and cannot do in terms of additional employment or secondary earnings.

Broaching the topic of OnlyFans with your employer might not be something you’re willing to consider, but you may be able to take advice elsewhere if you’re unsure.

Even if secondary earning is permitted within your contract, the nature of your OnlyFans account might cause a separate issue. For instance, someone who works with children or vulnerable people may be required to disclose this.

Some employment contracts now include a reference to online behaviour or expectations around employee conduct, so take some time to consider what this might mean for you.

 
Looking for more advice on all things finance and accounting? Head to our information hub where we’ve got a whole host of handy guides and resources for you to explore.

The post Do OnlyFans Creators Need to Pay Tax? appeared first on Freelancer News.

The standard VAT rate is 20% and this applies to most qualifying goods and services, although some things like sanitary products, financial services and children’s clothing have reduced (5%) or no (0%) VAT applied.

The end customer is the one that ultimately pays VAT but as you know, even as a business owner, sometimes you’re also the customer.

How does VAT work for freelancers?

Here are some key things to know about VAT as a freelancer:

• VAT works the same for freelancers as it does for any other type of contractor or business owner. Registration is only mandatory once your VAT taxable turnover reaches a certain threshold.
• You only need to charge VAT as a freelancer if you are VAT-registered
• Once you are registered for VAT, you will need to start adding VAT to your client’s invoices and submit VAT Returns to HMRC

Do all freelancers have to register for VAT?

No, not all freelancers will need to register for VAT. As with all types of business owners, you only need to register for VAT once your VAT taxable turnover (the total amount of sales you make of anything that isn’t exempt from VAT) exceeds the legal threshold.

The VAT threshold is currently set at £90,000. So, if your VAT taxable turnover is over this amount, you will need to register for VAT by law. The registration deadline is within 30 days from the end of the month in which you exceeded the threshold.

As long as your taxable turnover is under this threshold, you won’t need to worry about registering for VAT or charging your clients VAT. However, some people choose to register for VAT voluntarily.
 

Voluntary VAT registration

Unless you only sell goods or services that are VAT-exempt or zero-rated, you can voluntarily register for VAT, even if your taxable turnover is nowhere near the £90,000 threshold yet.

The benefits of registering for VAT voluntarily include:

• Making savings as you can reclaim VAT on business-related purchases. In some cases these can also be backdated for up to four years prior to your VAT registration date.
• Making your business appear more established and therefore more credible in your clients’ eyes.
• Making some types of EU invoicing easier.
• Eliminating the need for you to do it at a later date when your business will be bigger and you’ll be busier.
• Mitigating the risk of exceeding the legal VAT registration threshold without realising.

If you fail to register for VAT once it becomes mandatory, you risk being slapped with a financial penalty of between 5-15% of what you owe on top of the outstanding tax. If you think you’re going to pass this point within the next 30 days, it’s time to get VAT-registered, pronto!

Just be aware that:

• You’ll have more admin to do as you’ll need to account for VAT on your invoices and in your bookkeeping, and submit VAT Returns to HMRC.
• VAT registration can affect your pricing structure. Because it’s an added charge, you might decide to pass this on to your customers (so the amount they pay is higher), pay it yourself (which will eat into your profits), or a combination of both.

It’s important to note that if you aren’t registered for VAT, you aren’t allowed to charge or claim back any VAT.

Once you’re registered, whether it’s voluntarily or mandatory, you will need to start charging VAT on your goods and services.
 

The different VAT schemes

If and when you do register for VAT as a freelancer, you’ll need to understand the various schemes so you can choose how to charge, claim and report VAT in a way that suits you. These include:

• Standard VAT accounting scheme
• VAT Flat Rate Scheme
• VAT Cash Accounting Scheme
• VAT Annual Accounting Scheme
• VAT retail schemes
• VAT margin schemes

Let’s explore four of the most common schemes to help give you an idea of how each one works.
 

Standard VAT

The Standard VAT scheme is a great option if your cash flow is healthy and you have regular clients who are reliable payers.

Using this scheme, you charge VAT to your customers (output tax) and reclaim VAT on your purchases (input tax). You then pay HMRC the difference between these two amounts as part of your VAT Return, even if your customers haven’t paid you yet.
 

Flat Rate VAT

As the name suggests, this scheme is where you pay a flat rate of VAT to HMRC as a percentage of your turnover, as opposed to calculating the difference between output tax and input tax like you do with the Standard VAT scheme.

Once the flat rate is paid, you get to keep the difference between what you charge your clients in VAT and what you pay HMRC. For some business owners, this scheme is preferable because it’s quicker and easier than calculating specific amounts.

However, with the Flat Rate scheme, you aren’t allowed to reclaim VAT on your purchases. This scheme is good if you want something predictable and standardised or if you don’t typically pay much (or any) VAT on the things your business buys.
 

VAT Cash Accounting

Cash Accounting might make the most sense for you if your freelance clients aren’t regular or if your clients are notoriously bad at paying their invoices on time.

With this scheme, you account for the VAT on sales and purchases when the payment happens, rather than using the date of the invoice. This means you don’t need to pay the VAT you collect from a customer until they actually pay it, but likewise cannot claim the VAT you owe to a supplier until you pay them.
 

VAT Annual Accounting

VAT Annual Accounting is where you make advance payments towards your next VAT bill during the year, either on a monthly or quarterly basis, and then submit an annual return. You can request a refund from HMRC if the advance payments result in an overpayment.

The key thing to consider about the Annual Accounting VAT scheme is that you can only reclaim VAT on an annual basis. So, although it is one of the simpler methods, reclaiming on a yearly basis might not work for you (or your cash flow).
 

How do I add VAT to my freelance costs?

To charge your freelance clients VAT, you’ll need to figure out which VAT rates apply to your goods or services. Once you know this, you can then add this to your original costs on your invoices.

For example, if you charge a freelance client a £500 day rate and want to add VAT at the standard 20% rate, you’ll invoice them £600 in total. This is the £500 day rate plus 20% VAT (£100).

On your invoices, you should detail:

• The original cost (the price excluding VAT)
• The VAT rate (% amount) being applied
• The total (original cost plus VAT)
• Your VAT number

When discussing your prices with clients or displaying them on your website, make sure to communicate clearly that you charge VAT on top of your standard costs.

Remember to keep excellent records of all your financial transactions, and to record your VAT dealings in detail!
 
Looking for more expert business support? Head over to our info hub for more news and helpful resources.

The post Do Freelancers Need to Charge VAT? appeared first on Freelancer News.

In this article we’ll go over what you can claim for, and how to work out your mileage expenses.

How much is the mileage allowance for freelancers?

Freelance sole traders can claim a mileage allowance based on what type of vehicle they use for the journey. Travel in your own car or van, for example, and you can claim 45p per mile for the first 10,000 miles of business-related travel you do during the tax year, and then 25p per mile for the rest of the tax year.

The flat rate for mileage is set by the government:

• Cars and vans: 45p for the first 10,000 miles and then 25p for any miles beyond that
• Electric cars and vans: 45p for any number of miles
• Motorcycles: 24p for any number of miles
• Bikes: 20p for any number of miles

It’s also worth noting that if you employ anybody under your own company and you’re travelling with them, you can add on an additional 5p per mile, per passenger.

This method of claiming the mileage allowance is also known as the flat rate or simplified expenses method, because it’s designed to make it easier for freelancers to work out their claim – but you can’t use simplified expenses if:

• You’re a company director travelling on company business (instead, your company will reimburse you for the expense using the mileage rates, and then claim the cost of repaying you on its Company Tax Return)
• You’re using a vehicle designed for commercial use, like a taxi or a dual control driving instructor car.
• You’ve already claimed capital allowances for the vehicle or included it as an expense

So, what happens if you’re not eligible to claim your mileage using simplified expenses, or your costs are higher than the flat rate would allow you to get back? There is another option available to you.

Claiming your actual vehicle expenses

The direct cost (also known as actual expenses) method allows you to claim the exact cost of using your own vehicle for business travel. It can be useful if you’re not able to use simplified expenses, or if the flat rate amount isn’t enough to cover the cost of your trip.

This method requires you to be far more specific because you will need to calculate, as a percentage, how much of your motoring costs were directly related to business purposes.

Once you know this percentage, you can then claim that portion of all motoring and vehicle costs incurred, which can help save you more money than if you were to just apply flat mileage rates.

Actual expensing also calls for more meticulous bookkeeping and accounting because you will need to keep a record of things like fuel receipts, vehicle repairs, servicing, breakdown cover, parking, etc.

What trips can I claim travel expenses for?

You can claim the mileage allowance (or your actual costs) for journeys where you’re:

• Travelling from one work location to another (e.g. office to office, project site to project site, etc.)
• Travelling from a temporary business-related location such as a client’s premises or an event venue. This has to be somewhere you spend less than 40% of your time or somewhere you don’t expect to visit for more than 24 months to qualify as ‘temporary’.

The main thing to remember is that you can only claim allowances for trips or vehicle usage that is 100%, exclusively for business-related purposes. Anything personal-related will need to be discounted from your allowable expenses.

There are some scenarios in which mileage allowance won’t be applicable, and you won’t be able to claim any compensation for this type of journey, whether that’s the full journey or part of a longer journey. We’ll give you a few examples below.
 
Example scenario 1

You are asked to travel 30 miles to attend a meeting at a client’s office. In this case, you can claim mileage allowance on the whole journey (all 30 miles) because it was exclusively for business purposes.
 
Example scenario 2

You are asked to travel 30 miles to attend a meeting at a client’s office. However, on the way, you decide to take a 5-mile detour to run some personal errands while you’re on the road.

In this case, you can claim for the 30 miles required for business-related travel but the 5 miles at the start of the journey will need to be discounted.

You travelled 35 miles, but only 30 were for business, so the mileage allowance will only apply to this portion of the trip.
 
Example scenario 3

You decide to drive to The Lake District to spend a bank holiday weekend exploring. You cannot claim any mileage allowance for this trip because no portion of the journey is business-related. These are all personal miles.

How to record and claim mileage allowance

You should record the start and end point of every journey, the date on which it took place, and what method of travel you used. It’s up to you how you keep these records, as long as they’re complete, accurate, and clear!

There are different types of mileage tracking software and apps which might help, and some bookkeeping apps even include mileage tracking features – such as Pandle and QuickBooks.

You can then claim your mileage expenses through your Self Assessment tax return, along with any other costs, by deducting your claim from the total income you make, so you only pay tax on the profits left over.

Even if you only travel occasionally for business purposes, it’s still worth calculating, recording and claiming mileage allowance because every little helps towards keeping your tax bill down.

 
Find even more advice and guidance for freelancers in our info hub!

The post Can Freelancers Claim Mileage? appeared first on Freelancer News.

This process deals with how you record and manage what money is coming into the business (income) and what is going out of it (expenditure). Keeping an eye on this flow of cash (literally known as your cash flow!) is what will help you stay financially healthy, and hopefully improve your chances of making a profit.

With so many different types of bookkeeping software available for freelancers to choose from, we thought we’d take a look at why record-keeping is so important, and what software can do to help.

How can bookkeeping software help freelancers?

There are lots of reasons why freelancers should spend time making sure their bookkeeping is up to date and accurate, but this can be time-consuming. Accounting software can often help freelancers by processing data automatically, rather than relying on entering everything manually. Let’s look at some of the most common advantages of using bookkeeping software below.

Better budgeting and business decisions

Your financial accounts tell the real story of how well your freelancing is going. For example, it might seem like you have lots of money coming in, but if you’re also spending a lot on office space or coworking desks, things might not be as healthy as they seem.

Good record-keeping helps you manage your budget, and make more well-informed decisions about your spending. It’s also a great way to hold yourself accountable for setting money aside to pay your tax bill!

Lots of accounts software will include reporting tools, so you can look at your bookkeeping data in a way that’s easier to digest, rather than a wall of numbers.

Are your customers paying you on time?

As a freelancer, one of your biggest challenges can be battling late-paying clients. Following up can be time-consuming (and frustrating) so some bookkeeping software includes automated reminders.

You can usually set contact intervals and personalise the message, leaving the software to fire out an email reminder until the invoice is marked as paid.

Are you paying the right amount of tax?

Paying too much tax will leave you unnecessarily out of pocket, while underpaying runs the risk of fines on top of the tax bill you still need to pay – neither of which are ideal! Your bookkeeping records are the foundation of everything you tell HMRC about your business, so accuracy is key.

If you decide to use bookkeeping software, you can usually connect it to your bank account and pull information straight into your records. It tends to mean there’s a lower risk of errors or missing anything.

Helps make sure you’re getting as much tax relief as possible

And on the subject of accuracy, good bookkeeping habits also help you record and claim allowable business expenses which will reduce your tax bill.

If you declare income that hasn’t had expenses deducted from it, you’ll end up paying more tax than you should. So don’t!

Using cloud-based bookkeeping software means you can access your accounts from anywhere with an internet connection. This means you can upload receipts as you go, rather than saving and compiling random scraps of paper everywhere.

You can even track your mileage, upload photos of receipts and manage invoices.

You can spot a potential problem before it arises

Bookkeeping records can be compared over time, making it easier to spot trends and patterns over time – or even potential problems as they develop. A good accounting app will include reporting functions which make this easier.

For example, if you can see your cash flow moving into a situation that isn’t so healthy, you can quickly and easily ascertain where you’re overspending and where you need to cut costs for a while to get back on the straight and narrow.

Do I need to hire a bookkeeper for my freelance business?

No, it isn’t a legal requirement to hire a professional bookkeeper or accountant, and lots of freelancers take care of everything by themselves – but there are advantages to outsourcing your accounts to someone else.

Freeing up your time

As a business owner, time is a hot commodity. You really start to understand the true meaning of “there aren’t enough hours in the day”. Outsourcing your accounts to a professional buys you back more invaluable time to spend working with clients, sourcing new work, and building your freelance business.

Maximum tax efficiency

While you’re busy growing your empire, a bookkeeper or accountant will help you spot ways to be more tax-savvy. You’re more likely to capture (and claim) your allowable expenses, as well as take advantage of things like tax relief and allowances.

Better planning for the future

Having a professional in your corner will allow you to evaluate your financial records more effectively and accurately. This, in turn, will help you make more informed decisions about the direction of your freelance business.

How do I choose accounting software?

To make sure you’re reaping all of these benefits, the most important thing to do is find bookkeeping software that works for you.

Do some research, read reviews and even take a few free trials to get a feel for the kinds of features and user interface you want.

If you do sign up for any free trials, don’t forget to cancel the ones you don’t want or else they’ll end up being recorded in your accounts as an outgoing expense and wasting your hard-earned money.

How often do I need to review my bookkeeping as a freelancer?

How often you do your bookkeeping, if you’re doing it yourself, is mostly down to personal preference and how busy your schedule is, although the general rule is to do it as often as possible!

Again, going back to bookkeeping software, automated tools and feeds will help you keep your records closer to real-time without having to do quite so much manual intervention.

The choice is yours but the more meticulous you are with your routine, the easier the whole bookkeeping and accounting process will be.

 
Head over to our freelancer information hub for more guides, tips, and advice.

The post A Beginner’s Guide to Bookkeeping Software for Freelancers appeared first on Freelancer News.

These digital platforms are now responsible for providing information to HMRC about what their sellers are earning annually – a measure taken to clamp down on tax avoidance amongst freelancers, digital sellers, and gig economy workers.

HMRC having access to this information isn’t a new thing – it has always been able to request data about users’ earnings from digital platforms. What’s changed is that as of 1st January 2024, digital platforms are now required to actively collect users’ earning information as official protocol.

From January 2025, digital platforms are also be required to report the information collected about users’ earnings to HMRC. They should no longer wait for this to be requested. So, what do these updated rules mean for freelancers? Let’s investigate.
 

Who do the Digital Platform Reporting Rules apply to?

Essentially, any seller who generates income via a digital platform – whether they sell goods or services – could have their financial information shared with HMRC. This includes (but is by no means exclusive to):

• Freelancers
• Those selling goods via an online marketplace
• Those letting short-term accommodations such as holiday rentals
• Private hire services (including taxi drivers)
• Food delivery services (e.g. Deliveroo, UberEATS, etc.)

Keep in mind that the Digital Platform Reporting Rules might also apply if you’re a UK freelancer selling your services abroad.
 

Exceptions to the rules

If you are only an ‘occasional’ seller, digital platforms won’t need to report your earnings to HMRC. Those who fall under the category of an occasional seller are those who:

• Earn €2,000 or less
• Make fewer than 30 sales

However, if you’re a full-time freelancer, the exception of ‘occasional selling’ won’t apply to you – unless you have some sort of separate side hustle to support your freelance income.
 

How the Digital Platform Reporting Rules affect freelancers

Many freelancers use a digital platform to sell their goods or services, whether it’s a website, software, app, or online marketplace. As a result, the Digital Platform Reporting Rules apply.

The updated regulations also apply to freelance platforms such as Upwork and Fiverr. This means that any earnings you generate through these channels could be reported to HMRC by the platform.

If HMRC finds any discrepancies between your financial accounts and the information provided by the digital platform, this could be grounds for an investigation.
 

Is a tax return still required?

Yes, for those who the rules apply to, it is still necessary to submit tax returns as normal. Despite most digital platforms now being responsible for reporting to HMRC about what you earn from them, you (the taxpayer) don’t actually need to do anything different – as long as you were compliant!

So, if you’re registered as a sole trader, you’ll still need to go through the same Self Assessment tax return process in order to keep HMRC up to date and pay the required taxes and deductions. If you need to register, make sure you do it before the deadline!
 

Important dates to remember

Most freelancers submit their tax return using accounts on the basis of a tax year, which runs 6th April – 5th April. What could be confusing is that digital platforms will report user earnings to HMRC every calendar year 1st January – 31st December.

So, if you find yourself needing to compare figures, keep these different accounting periods in mind.
 

Do the rules affect tax allowances?

No, the Digital Platform Reporting Rules will not interfere with any tax allowances. This includes the Personal Allowance and the Trading Allowance.

The rules won’t affect your allowable expenses either. This means that if you make money through selling via a digital platform, you can still claim relief for all of your normal tax-deductible costs.
 

Digital Platform Reporting Rules FAQs

We’ve covered the fundamentals of the Digital Platform Reporting Rules but below are some further FAQs that you might find useful.
 

Will HMRC know about my online earnings?

If you meet the Digital Platform Reporting Rules criteria outlined above, HMRC will be informed of your earnings. That said, you should be reporting your earnings to HMRC yourself via tax return if your self-employment income is more than the Trading Allowance.

Do I have to pay tax if I sell secondhand clothes online?

If you earn more than £1,000 in a tax year through selling secondhand clothes through digital platforms like Vinted, Depop, and eBay, you will need to register for Self Assessment and pay tax – just like any other source of income.

What has been dubbed the ‘side hustle tax’ aims to help online sellers get their taxes right, as well as rooting out non-compliance more effectively. The Digital Platform Reporting Rules apply to resale sites like Vinted, Depop, eBay, etc., so it’s important to record your earnings accurately.
 

Can you find out what the platform told HMRC?

Yes, the digital platform is required to provide a copy of the data it reports to HMRC regarding your earnings from them.
 

Keeping accurate accounts

Although the Digital Platform Reporting Rules won’t affect allowances or tax-deductible expenses in any way, it is still essential to maintain accurate bookkeeping records..

Even though the rules also don’t impact the tax return process or liabilities, you still need to be meticulous in providing HMRC with the required information and meeting all of the necessary deadlines.

With digital platforms now responsible for reporting your earnings to HMRC, it’s vital that your own financial reporting tallies up.
 
Find even more advice and guidance for freelancers in our info hub!

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Generating your own income from self-employment means you’re also responsible for paying your own tax and keeping HM Revenue & Customs (HMRC) up to date with your financial situation.

How you pay the tax you owe on your freelance earnings depends on how you are set up as a business.

For most freelancers this usually means operating as either a sole trader or as a limited company. These structures have different rules for reporting and paying tax (as well as different tax rates) but because they’re the most common options, we’ll go over both.

Paying tax as a (freelance) sole trader

If you’re set up as a sole trader, you will need to submit an annual Self Assessment tax return online or through the post and pay Income Tax on your freelance earnings. This is the most popular route for self-employed freelancers to take (but other options are available!).

Submitting a Self Assessment tax return

There are different deadlines depending on whether you submit your Self Assessment tax return online or through the post.

HMRC is encouraging all taxpayers to file returns digitally moving forward (as part of Making Tax Digital) but for now, paper returns are still accepted.

If you submit a paper tax return, the deadline is 31st October following the end of the tax year being reported. If you submit an online Self Assessment, you have a little longer, until 31st January.

Paying Income Tax

After submitting your tax return, you’ll receive a tax bill detailing how much you owe in Income Tax and National Insurance.

Your tax bill can be paid:

• Online through your account with HMRC by debit or corporate credit card
• Via Direct Debit
• By approving a payment through your online bank account
• Telephone bank transfer
• At your bank or building society
• By cheque via the post

You also have the option to pay your tax bill through your tax code. Taking this option means your tax code will change, and your employer will deduct the tax you owe for self-employment alongside your usual deductions. It might be something to avoid if you don’t want your employer to know you’re self-employed! This is only available if:

• You owe less than £3,000
• You already pay tax through PAYE
• You submitted your paper tax return by 31st October or your online tax return by 30th December (a little earlier than the usual 31st January deadline for online submissions)

Making payments on account

If your tax bill comes to more than £1,000 then you might also need to make payments on account. This is where HMRC ask you to make advance payments towards next year’s tax bill, based on predictions of what you are likely to earn.

These are paid in two installments and need to be paid by the following deadlines:

• First installment – 31st January (the same deadline for paying the current year’s tax bill)
• Second installment – 31st July of the same year.

Paying tax if you’re set up as a limited company

If you’re set up as a limited company, you will need to submit an annual Company Tax Return and pay Corporation Tax on your freelance earnings.

The deadline for filing this type of tax return is 12 months after the accounting period it covers has ended.

Paying Corporation Tax

Once you have submitted your Company Tax Return, you will then be informed how much Corporation Tax you need to pay.

If your taxable profits are below £1.5 million, this needs to be paid within 9 months and 1 day of the accounting period ending.

If your taxable profits exceed £1.5 million, you will need to pay your tax in installments, each with their own separate deadlines.

Can a freelancer claim tax relief on expenses?

Yes, just like any other business, freelancers are allowed to claim allowable expenses as tax relief against their bill, helping to keep your tax bill down!

Common examples of allowable expenses freelancers claim include:

• Work-from-home expenses (such as a portion of your rent, utility bills, internet connection, etc.)
• Business-related supplies and equipment (laptop, printers, software, stationery)
• Work-related travel costs (tickets, hotels, food and drink)
• Professional services (solicitor, accountant, etc.)
• Marketing and advertising costs (business cards, web hosting fees)
• Membership fees and subscriptions

Any expenses you claim need to be directly related to your freelancing work and necessary to the operation of business-related activities.

Remember to keep receipts and documentation to support your claims, just in case you ever need to produce them for an audit!
Find more expert advice and handy resources for freelancers in our info hub!

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Your 10-digit UTR number is, like the name suggests, completely unique to you. For instance, if you operate a limited company you’ll receive a UTR for the company, but this will be different to the UTR you use to report your own finances through Self Assessment.

If your self-employed income is more than the £1,000 trading allowance, you’ll need to register for a UTR number even if you’re only freelancing on the side at the same time as working for someone else.

How do I get a UTR number?

Obtaining a Unique Taxpayer Reference is simple and fairly quick. If you register a company with Companies House they’ll automatically notify HMRC who will send out the company’s UTR ready for when you need to submit a Company Tax Return.

If you need to sign up for Self Assessment you’ll be sent your UTR in the post once you register.

To register for Self Assessment and get your UTR number:

1. Go to the HMRC Self Assessment registration page
2. Create a Government Gateway account (if you don’t already have one)
3. Enter your personal details. You’ll need your National Insurance number along with other information such as your employment and income status
4. Submit your registration and wait while HMRC reviews the application
5. Once your application has been confirmed, HMRC will send your UTR number to you in the post, or check it using your Personal Tax Account.

A note on Partnerships

If you’re registered as a sole trader, you’ll only need one UTR number. In the case of partnerships, each individual partner will be required to have their own UTR, and then the partnership itself will have a separate one.

How long will it take to receive a UTR number?

Receiving a new UTR number through the post normally takes around 10 working days, although this can take longer during the busy tax season. Once issued, you’ll also be able to view it through your Personal Tax Account too.

If your UTR number doesn’t arrive after a few weeks and you’re concerned, contact HMRC and they’ll be able to help.

It’s essential that you register well before you need to use your UTR number for anything. The last thing you want is to start the process late and not receive your UTR until after the tax return deadline! Missing deadlines almost always leads to financial penalties from HMRC.

What is a UTR number used for?

The main purpose of a UTR number is to identify you as a taxpayer so that HMRC can ensure you’re compliant with submitting and paying tax on time. Think of it as a passport number for the business.

• Filing your tax returns: HMRC uses your UTR number to track and process tax payments and declarations accurately.
• Claiming tax refunds: UTR numbers are used to ensure that rebates and refunds are credited to the right taxpayer account.
• Allowing your accountant to act on your behalf: Your accountant will need your UTR number if they act as your agent to HMRC.
• Registering for the Construction Industry Scheme (CIS): If you work in the construction industry, you’ll need a UTR to register as a contractor or subcontractor for the Construction Industry Scheme (CIS). Subcontractors will also need to provide their UTR to the contractor so that they can confirm their registration status, and make CIS deductions at the correct rate.

What a UTR should NOT be used for

The most important thing to remember is that your UTR number should never be shared publicly and your customers will never need access to this private code. This means you should never include your UTR number on things like invoices or client-facing documents.

Some business owners can get confused between the dos and don’ts of UTR numbers versus things like CRN (Company Registration Number) or VRN (VAT Registration Number). While CRNs and VRNs are readily circulated, UTRs should remain confidential.

If you’re ever asked to share your UTR number with anybody other than HMRC, a contractor that you’re subcontracting for, or your accountant, think twice as this could be a scam. If your UTR gets into the wrong hands, you run the risk of falling victim to fraudulent activity or cyberattacks.
 
What if I forget my UTR number?

Looking for your UTR number? You should be able to find it through any of the following routes:

• By logging into your Personal Tax Account online
• With the HMRC app
• By checking on a previous tax return
• Statement of accounts
• Other types of HMRC documents (e.g., tax payment reminders)
• Your original SA250 welcome letter (if you still have it to hand)

If you don’t have access to any of the above and you can’t find any HMRC documents or correspondence with your UTR number on, don’t worry.

Sole traders should call HMRC’s dedicated Self Assessment helpline (0300 200 3310) and request to have the UTR posted to you – it should normally arrive within 10 working days.

If you have a limited company, you can request your UTR online and HMRC will send it to your business’s registered address by post.

Top tip: Keep a note of your UTR number in a locked note on your phone so you can access it easily but it stays secure. That way, you won’t have to go through the pesky process of requesting and waiting for your lost information when you need it.

Find more of the latest news and guidance for freelancers in our info hub.

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If you do fall under CIS and don’t comply with the system, you could find yourself facing crippling financial repercussions. HMRC can request your CIS records at any time and if you aren’t able to produce them, they can fine you up to £3,000, as well as further late filing fees—even if it’s just an honest mistake.

The Construction Industry Scheme in a nutshell

The Construction Industry Scheme was introduced in 1971 to simplify and standardise how contractors pay sub-contractors working in the construction industry. The scheme was also designed to streamline how tax is paid and how deductions are made.

Basically, CIS was put in place to address false employment and tax evasion within the construction industry.

Contractors and CIS tax deductions

Under CIS rules contractors are required to make deductions before paying a sub-contractors’ invoice. These deductions go straight to HMRC and are put towards the sub-contractor’s tax and National Insurance (NI) bill as a sort of advance payment on their Self Assessment bill. It basically means that their earnings are taxed at source.

Does a freelancer have to register for CIS?

Not all freelancers will need to register for the Construction Industry Scheme. If you provide services such as copywriting, graphic design, or bookkeeping, for example, you won’t need to worry about CIS at all. As the name suggests, CIS is only relevant to those working within the construction industry.

Am I a contractor or sub-contractor?

If you hire another self-employed person to work with you on a project, and they’re not paid through PAYE as an employee, they’re your subcontractor, and you’re a contractor.

It can get a bit confusing because you might be both a contractor and a subbie at the same time. For example, if you work for someone else as a subcontractor, whilst also contracting work out to a subcontractor of your own!

CIS for contractors – at a glance

As a contractor in the construction industry, you’re legally required to register for CIS whenever you begin paying sub-contractors for work directly related to construction. This doesn’t happen automatically, so it’s up to you to make sure you get yourself set up and sorted.

You’ll need to ask your sub-contractor for their Unique Taxpayer Reference (UTR) and use this to verify that they’re CIS-registered with HMRC. It’s an important step, because their registration status determines which rate you use to make deductions from the bill before paying them.

You must submit CIS Returns to HMRC each month (unless you tell them that you no longer pay any subcontractors) and report the details of any payments and deductions.

CIS for sub-contractors – at a glance

Although a sub-contractor working in the construction industry isn’t required to register for CIS, some people find it has its advantages – namely in terms of cashflow. The rate a contractor uses to work out how much CIS tax to deduct depends on whether or not you’re CIS registered.

• Registered: 20% deductions
• Unregistered: Deductions are made at 30%

When you submit your Self Assessment tax return, you’ll get back any overpaid tax in the form of a tax rebate.

You’ll be issued a statement or payslip detailing the gross payment and total deduction amount each time the contractor files a CIS return with HMRC. Keep these safe for your financial records.

Exclusions from CIS

There are a few exceptions to the rule where both contractors and sub-contractors are concerned, including:

• Architectural surveying
• Carpet fitting
• Delivery of materials
• Site facility management
• Scaffolding hire (without labour)
• Work on construction sites that is clearly separate from construction-related activities, e.g. food catering.

Staying on top of tax as a freelancer under CIS

It’s not unusual to overpay tax under CIS. This is because the deductions don’t take into account your personal allowance or any tax relief that you claim on your allowable expenses.

If you end up overpaying tax under CIS, you’ll be due a refund (or a rebate) from HMRC. One of the best ways to speed up this process and reclaim your money quickly is to get your Self Assessment return filed ASAP!

Looking for more advice on all things finance and accounting as a freelance professional? Head to our Freelancer Finance hub where we have a whole host of handy guides for you to get stuck into.

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